When A Claim Is Not A Claim

When is a claim not a claim? When it’s not.

In K-B Offset Printing, Inc. v. Department of General Services, a not-so-recent unreported decision, the Pa. Commonwealth Court held that a letter sent by a contractor to the Pa. Department of General Services and asserting entitlement to more than $1 million in contract underpayments did not constitute a “claim,” as that term is defined in the Pa. Procurement Code. As a result, the contractor was barred from pursuing its claim before the Pa. Board of Claims due to its failure to exhaust administrative remedies. (Under the Procurement Code, a contractor must first file a claim with the contracting officer before it can proceed before the Board of Claims, and the claim must be filed within six months of the date it accrues.)

A five-year contract between K-B Offset Printing and the state had expired in May 2011. An audit by K-B discovered that K-B was entitled to additional compensation, due to contractual price adjustments that were to occur every six months but were never implemented. In June 2011, K-B sent a letter to DGS demanding the underpayments. While DGS conceded that it had not made the necessary price adjustments, DGS refused to recognize the K-B claim to additional payments, basing its decision on its belief that K-B’s claims were barred by a six-month statute of limitations.

K-B then filed a claim with the Board of Claims. DGS objected, claiming that the Board lacked jurisdiction because K-B did not first exhaust its administrative remedies by filing a claim with the contracting officer. The claim was then dismissed by the Board of Claims. On appeal, the Commonwealth Court accepted DGS’s argument that K-B’s claim was not ripe because K-B did not first file a claim with the contracting officer before it proceeded with filing its claim with the Board of Claims. The Commonwealth Court held that K-B’s June 2011 letter was not a “claim,” and that K-B’s claim for the additional payments did not accrue until DGS sent the July 2011 letter which stated that DGS would not make any further payments. The Court rested its holding on a rule of the Supreme Court that a “claim” does not accrue until a claimant is affirmatively notified that it will not be paid by the Commonwealth.

At first blush, the court’s reasoning appears to be a monumental splitting of hairs. K-B sends a letter to DGS demanding more than $1 million as a matter of right under a contract. That looks and sounds like a claim. DGS then sends a letter conceding that it goofed on the pricing adjustments, but refusing to pay any more money to K-B due to a legal technicality. That looks and sounds like a denial of a claim. Nonetheless, the Commonwealth Court holds that a “claim” must still be filed with the contracting officer, even if such a claim is identical to the first letter and is doomed to ultimate failure. However, the first letter was not a claim because at that time DGS had not yet stated that would not pay K-B the underpayments. Until that statement was made by DGS, there was no “claim” that could be filed and pursued.

The moral of the story? File the paperwork, and dot your i’s and cross your t’s, even if the claim is pre-destined to be rejected and doomed to failure. The Commonwealth Court has now made it abundently clear that even a pointless gesture must be pursued in order to perfect a claim before the Board of Claims.

The K-B Offset court decision can be found here. Read it and be forewarned.

Posted on January 17, 2013 by Christopher I. McCabe, Esq. in Board of Claims, Court Decisions, DGS, Procurement Code Comments Off

Reminder: E-Verify Now The Law For Public Works Contracts In Pennsylvania

Effective January 1, 2013, E-Verify is now in place for employment verification for public works contracts in Pennsylvania. My earlier post on E-Verify can be found here.

The Pa. Department of General Services (DGS) has a new page on its website that details the E-Verify requirements and provides a link to a new employment verification form created by DGS for use by public works contractors and subcontractors. The new DGS page can be found here.

The new DGS regulations (4 Pa. Code. Chapter 66) can be found here.

Posted on January 2, 2013 by Christopher I. McCabe, Esq. in E-Verify Comments Off

Former Philadelphia School Superintendent Ackerman Directed Award of No-Bid Contract

According to a recent Inquirer article, the Philadelphia School Reform Commission has concluded that former Philadelphia School Superintendent Arlene C. Ackerman directed Philadelphia School District staff to award a controversial $7.5 million no-bid contract for surveillance cameras to a small minority-owned firm in 2010. The Philadelphia Inquirer article reporting the SRC’s conclusion can be found here.

My earlier post on the lawsuit which was filed by the company which lost the contract can be found here. This news should bolster the chances of the company in its lawsuit against the School District.

Posted on December 27, 2012 by Christopher I. McCabe, Esq. in Phila. School District Comments Off

City of Phila. Contractors Pay $400K To Settle Alleged Violations of M/W/DSBE Contracting Requirements

The City of Philadelphia has once again taken enforcement action in connection with its M/W/DSBE contracting requirements.

Under a no-fault settlement agreement signed with the City on December 13, 2012, two City contractors, Aramark Correctional Services and Strother Enterprises, Inc., have agreed to pay a total of $400,000 to settle the City’s claim that the companies circumvented the City’s minority-business requirements and anti-discrimination policies by submitting inaccurate invoices to the City for payment under food services contracts with the Philadelphia Prisons.

The City’s investigation confirmed that Strother was a City-certified MBE and performed actual work in connection with the Prison food services contracts, and that the arrangement between Aramark and Strother did not increase the amounts paid by the City under the Prison food services contracts. Nonetheless, the City found that Aramark overreported the participation of Strother on the food services contracts. The City alleged that, instead of paying at least 20% of the contract value to Strother, as specified in the contract, Aramark, through the use of a circular billing arrangement, in effect paid Strother approximately 4% of the contract value, an overstatement of more than $2 million.

This is the fourth enforcement action taken by the City this year. My posts on the City’s earlier enforcement actions can be found here, here and here.

If you are a City contractor and you think you can evade the City’s M/W/DSBE contracting requirements, think again! The City’s Inspector General is deadly serious about enforcing the City’s M/W/DSBE contracting rules. If you violate them, you will eventually get caught. When that happens, you will pay a hefty price. Don’t make that mistake! Get sound legal advice before you proceed down a path of no return and potential debarment and significant fines and penalties.

The executive summary of the settlement can be found here. The settlement agreement can be found here.

Posted on December 18, 2012 by Christopher I. McCabe, Esq. in City of Phila., DBE/MBE/WBE Comments Off

Public Bidding 101: Rejection of All Bids

This post is another in a continuing series on the basic tenets of public bidding in Pennsylvania. The subject of today’s post concerns the rejection of all bids by the public entity.

There are many times that a public entity solicits bids, only to reject all of the bids and conduct a re-bidding. The reasons for a rejection of all bids may be due to the bid prices exceeding a preliminary construction estimate, or due to a non-responsive, but extremely attractive, low bid that can be easily corrected on a re-bidding, thereby ensuring that the pubic entity gets the best price available. Clients often ask me whether this is allowed and what they can do to challenge this type of conduct. Their concerns stem, in part, from the exposure of their bids and their prices which many fear leads to a competitive disadvantage on the re-bidding. Unfortunately, there is little to stop such conduct.

First, bidders themselves have no standing to complain of such conduct. Only a taxpayer can complain and sue to stop such conduct. Second, there is really no legal basis to stop such conduct. If a statute allows it, or if the bidding instructions permit it, which is almost always the case, a public entity is free to reject any and all bids, for good reason or for no reason.

In Weber v. City of Philadelphia, 437 Pa. 179, 262 A.2d 297 (1970), a seminal case in the area of public bidding, the Pennsylvania Supreme Court noted:

“…if a municipality, in connection with competitive bidding, is empowered to do so, it may reject any and all bids in the absence of fraud, collusion, bad faith or arbitrary action…”

As the Supreme Court noted in Weber, the only limitation on the public entity’s power is where such decision is influenced by fraud, collusion, or is committed in bad faith, or constitutes arbitrary action. But these are high hurdles to surpass and I have never encountered a situation where a court has enjoined the rejection of all bids.

So, if a public entity decides to reject all bids, there is very little that anyone can do about it. For additional enlightenment on this topic, the Weber case can be found here.

Posted on December 11, 2012 by Christopher I. McCabe, Esq. in Public Bidding 101 Comments Off

PennDOT Adjusts Procedures for Counting DBE Suppliers

Effective November 15, 2012, the Pennsylvania Department of Transportation (PennDOT) announced in a recent Bulletin on its ECMS website that it was adjusting its procedures for counting DBE suppliers in response to federal guidance.

Under the new procedures, in order for a DBE firm to receive regular dealer (60%) credit for materials supplied on a federally-assisted transportation project, the answer to the following two questions must be “yes”:

First, does the firm “regularly” engage in the purchase and sale or lease, to the general public in the usual course of its business, of products of the general character involved in the contract and for which DBE credit is sought?

Second, is the role the firm plays on the specific contract in question consistent with the regular sale or lease of the products in question, as distinct from a role better understood as that of a broker, packager, manufacturer’s representative, or other person who arranges or expedites a transaction?

In order to assist prime contractors and DBEs, PennDOT has developed a new form for determining the appropriate DBE credit. This form can be found here. PennDOT is also requesting feedback on the form from prime contractors who elect to use it. Comments and suggestions should be submitted to: minorityparticipation@pa.gov.

According to the PennDOT Bulletin, if it is later determined that the DBE misrepresented itself or erroneously concluded that it was acting as a regular dealer, the DBE participation would still have to be revised. However, PennDOT would fully consider the form’s documentation in its good faith efforts review if the prime contractor was unable to replace the DBE participation. Therefore, it would be prudent for prime contractors to start to use this form in order to protect themselves from a later adverse determination on “good faith efforts.”

The complete Bulletin can be found here.

Posted on December 4, 2012 by Christopher I. McCabe, Esq. in DBE/MBE/WBE, PennDOT Comments Off

Public Bidding 101: The RFP

This post is another in my continuing series on the basic tenets of public bidding in Pennsylvania. The subject of today’s post is the Request for Proposal (RFP) and whether, and to what extent, the general rules of sealed, competitive bidding apply to RFPs.

An RFP is a type of invitation to bid. It is typically used where the public entity seeks to enter into a contract in the area of professional services – such as architectural, engineering or legal services. This is because contracts for those services are not governed by the rule of lowest responsive, responsible bidder, and in fact can be awarded, in many instances, without any competition whatsoever and to a bidder whose bid is not the lowest in price.

In Malloy v. Boyertown Area School Bd., 540 Pa. 308, 657 A.2d 915 (1995), a seminal case in this area, the Pennsylvania Supreme Court described the reasons why the “low bid” rule does not apply to professional services contracts:

For those contracts for which the distinctiveness and quality of service is the paramount concern, there exists a special relationship between the property owner and the contractor. In these types of contracts, the contractor owes a special duty of loyalty to the property owner because the contractor in essence becomes the property owner’s agent and, therefore, must act in good faith and always in the furtherance of the property owner’s interests vis-à-vis the other contractors on the project.

The Supreme Court’s statement nicely summarizes why professional services contracts are not subject to the low bid rule. There is an element of trust in such contracts, and this element is not necessarily assumed by the bidder whose bid is the lowest. So, the public entity has discretion in the award of such contracts and can seek to enter into such contract through an RFP process.

However, once the public entity embarks on a course of bidding, even via a more informal RFP process which does allow for negotiation, it is bound to “adhere to that procedure throughout the procurement process.” In Lasday v. Allegheny County, 499 Pa. 434, 453 A.2d 949 (1982), another seminal case in this area, Allegheny County solicited proposals under an RFP for operation of a newstand and gift shop concession. The RFP stated that separate proposals to operate only the newstand would not be accepted. Nonetheless, Allegheny County then allowed one proposer to make such a proposal and to grant the concession to that proposer on the basis of its proposal, without also allowing the existing operator an opportunity to submit such a proposal. The Supreme Court held that this was improper and held that, once an RFP process is undertaken, it must be adhered to in all respects in accordance with its instructions and guidelines.

If you are a respondent to a public RFP, consider these rules carefully, and remember that the public entity cannot act contrary to the instructions of its own RFP.

Posted on November 20, 2012 by Christopher I. McCabe, Esq. in Court Decisions, Public Bidding 101 Comments Off

DGS Announces 765 Small Business Self-Certifications

According to a recent announcement of the Pennsylvania Department of General Services, 765 small businesses have self-certified to participate in Pennsylvania’s new Small Business Procurement Initiative program, all in less than three months after Governor Tom Corbett announced the new program.

The DGS press release can be found here. My earlier post on the new Pennsylvania initiative can be found here.

Posted on November 13, 2012 by Christopher I. McCabe, Esq. in DGS Comments Off

U.S. Department of Transportation Proposes Modifications to DBE Rule

On September 6, 2012, the U.S. Department of Transportation published a Notice of Proposed Rulemaking (NPRM) which proposed various modifications to its Disadvantaged Business Enterprise (DBE) Program.

The U.S. DOT DBE program affects public contractors in Pennsylvania working on Federal-aid highway, Federal Transit Administration, or Federal Aviation Administration funded projects. This would include, for example, PennDOT, airport, Phila. Streets Department, and SEPTA projects. The Associated General Contractors of America has prepared a summary of the significant proposed changes in the NPRM – it can be found here.

The U.S. DOT has also extended the period for comments on the NPRM to December 24, 2012. Information on the NPRM and the extended comment period can be found here and here.

Posted on November 6, 2012 by Christopher I. McCabe, Esq. in DBE/MBE/WBE Comments Off

New Law Directs DGS To Prepare List Of Products Exempt Under Steel Procurement Act

On October 25, 2012, Governor Tom Corbett signed HB 1840 which amends the Pa. Steel Products Procurement Act (first passed in 1978) and which directs the Pa. Department of General Services (DGS) to prepare a list of steel products, such as machinery and equipment, that are not produced in the United States in sufficient quantities and that are therefore exempt from the provision in the Act that local governments purchase steel products manufactured only in the United States.

Once prepared and publicly accessible via the internet, contractors, subcontractors, suppliers, bidders, and public agencies will be able to rely upon the list in preparing bids and entering into contracts. The list of exempt machinery and equipment is to be updated annually on a date selected by DGS. In addition, prior to publication on its website, and in each subsequent year, DGS must publish the list in the Pennsylvania Bulletin and provide for a 30-day public comment period. DGS is also required, via a statement of policy, to establish a process for creating the list and resolving disputes with respect to items on the list raised during the public comment period prior to the publication on its website.

This new law is sure to be welcomed by contractors and suppliers as it will eliminate uncertainty in bidding and will reduce disputes over whether certain steel products are produced in sufficient quantities in the United States.

HB 1840 takes effect in 60 days and can be found here.